Bharti Airtel: Fund-raising plan is a welcome move

Bharti Airtel’s (BHARTI’s) board has approved an Rs 320-bn fund raise, which includes a rights issue of Rs 250 bn and perpetual bonds with equity credit of Rs 70 bn (foreign denominated). Issue price of Rs 220/share implies an issuance of 1,134 m rights shares, which would result in 22% post equity dilution. The fund raise is likely to bring down net debt/Ebitda sharply to 3.5x (FY19), as against the current estimate of 4.5x. Additionally, the plans of Africa IPO and Bharti Infratel stake sale will help raise Rs 400 bn, reducing net debt to Rs 475 bn (net debt to Ebitda of 1.6x) by FY21.

Moreover, we believe that capex intensity has peaked out, which should reduce its annual cash burn from Rs 169 bn in FY19 to positive FCF of ~Rs 43 bn in FY21, restricting the increase in net debt. In our view, despite the steep dilution, the fund raising plan is a welcome positive which will allow BHARTI to be self-sufficient and manage operations without any ARPU increase. Maintain Buy with a target price of Rs 380.